Maine’s senators support extending payroll tax cut

WASHINGTON — Maine’s Republican senators say they support extending a Social Security payroll tax cut into next year, but they don’t like Senate Democrats’ plan to pay for it by raising taxes on millionaires.

The payroll tax cut, which is set to expire Dec. 31, is headed for a partisan vote this week. President Obama and fellow Democrats have been leading the charge to extend the tax break that affects millions of American families.

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“I don’t think that we should be imposing additional taxes on working families at a time when the economy is so fragile,” said Sen. Susan Collins, R-Maine. “So the issue for me is how it is paid for.”

The payroll tax was trimmed from 6.2 percent to 4.2 percent this year. That saved a family earning $50,000 per year about $1,000.

Senate Democrats want to cut the payroll tax further for 2012, to 3.1 percent, which they say would save that same family about $1,500 and spur spending to boost the economy. The payroll tax cut extension also would apply to employers – on the first $5 million of an employer’s payroll – which Democrats say would encourage more hiring.

Democrats would pay for the payroll tax cut by imposing a 3.25 percent surcharge on the income taxes paid by people whose annual income exceeds $1 million.

A number of Republicans say they are agreeable to extending the payroll tax cut, but don’t want its cost – about $250 billion – added to the federal deficit.

They also say that the surcharge on millionaires would hurt small businesses and hinder job creation. Other Republicans are ambivalent about the tax cut, saying they aren’t sure it would do much in the long run to strengthen the economy.

Collins told reporters Tuesday that she might be willing to compromise on the issue if Senate Democrats agree to exempt small-business income from the surcharge on the income taxes paid by millionaires.

“I have advocated that we do a carve-out for small business out of the so-called millionaires tax to make sure that it is not hitting subchapter S corporations, for example, and discouraging small employers from doing more hiring,” Collins said.

Of the roughly 150,000 Maine residents who reported business income on their tax returns in 2009, fewer than 400 had federal adjusted gross income of more than $1 million, according to Maine Revenue Services.

Asked about the relatively low number of small businesses in Maine that stand to pay the surcharge, Collins spokesman Kevin Kelley said, “Senator Collins wants to protect job creators and middle-class taxpayers, not multimillionaires and billionaires.”

Sen. Olympia Snowe, R-Maine, is among the Republicans who question whether another one-year payroll tax cut is the spark that’s needed to boost the economy. It would be far better for Congress to spend its time working on a comprehensive overhaul of the tax code, Snowe told reporters Tuesday on Capitol Hill.

“I support the policy behind (the payroll tax cut), to some extent,” Snowe said. “I wouldn’t say that that is the end-all and be-all to solving the questions about creating jobs. What I’ve heard from employers is that a one-year policy isn’t going to be sufficient unto itself to prompt them to hire people, because that is a long-term cost.”

Snowe noted that Republicans voted against a similar millionaires surcharge that Democrats proposed to pay for other job creation proposals.

“We ought to look at the options for supporting alternatives instead of having more political votes,” Snowe said, adding that she would look at Collins’ proposed compromise.

Senate Democrats will put the extension up for a vote, but with the expected GOP opposition they are likely to fall short of the 60 votes needed to clear a procedural hurdle.

With many economists warning that allowing the payroll tax cut to expire could drain needed spending money from the economy, it appears likely that a compromise will be found.

Senate Majority Leader Harry Reid already appeared to be conceding failure when he said Monday that he will bring the payroll tax cut extension back in various forms until it passes. Reid declined to say where he thinks a compromise might be found.

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